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Issue #108: A weekly update on responsible investment.
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\\ Weekly Insights \\
The expectation that organisations should be held accountable — on a broader range of issues, to a broader range of stakeholders — is a point emphasised by UK CEOs. A recent survey conducted by PwC dug into this point asking many UK CEOs around key targets. They shared:
This echos the points made in Larry Fink’s 2022 Letter to CEOs where he dug deep into purpose.
“[Voice] is more important than ever. It’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy, and a long-term view. The stakeholders your company relies upon to deliver profits for shareholders need to hear directly from you — to be engaged and inspired by you. They don’t want to hear us, as CEOs, opine on every issue of the day, but they do need to know where we stand on the societal issues intrinsic to our companies’ long-term success.”
Considering this sentiment, two UK CEO’s shared:
Michael Ryan, CEO of Dalmore Capital, says: “The purpose of a business used to be to generate profits for its shareholders, almost full stop. And if you dared suggest objectives that were not consistent with dividends and profits, you’d be shouted down. But the world has changed. The general view now is that CEOs are accountable to the public.”
Steve Gray, CEO of Nuffield Health, adds: “CEOs have to have 360-degree responsibility, not just to the board, the shareholders and the City analysts. CEOs have a responsibility to everyone and everything that goes on within an organisation. We are just at the start with this trend. It’s going to grow faster and faster.”
We are even seeing this reflected in employee bonus and incentive plans:
Global CEOs committing to ESG targets in their bonus and incentive plan, by company size
Larry Fink’s letter dives into this further going into the relationship between workers and their employers sharing:
“Companies not adjusting to this new reality and responding to their workers do so at their own peril. Turnover drives up expenses, drives down productivity, and erodes culture and corporate memory. CEOs need to be asking themselves whether they are creating an environment that helps them compete for talent.”
\\ Nossa News \\
Number of companies disclosing on workforce topics jumps
Nearly a quarter more publicly listed companies disclosed their workforce practices to investors through the Workforce Disclosure Initiative (WDI) (The framework Nossa Data partners with) last year than the year before. ShareAction said the number of FTSE 100 companies disclosing employee data now stands at 50 — up from 39 in 2018 — with BlackRock, abrdn, M&S, Mahindra, Puma, SingTel and TSMC among the new firms taking part. notable names missing include:
- Boohoo Group
- JD Sports
- Royal Mail
- Exxon Mobil
- The Home Depot
“With half of the FTSE 100 now disclosing workforce data to investors, these persistent non-responders are beginning to look like laggards with something to hide.”
\\ Top Stories \\
The Best Sustainable Companies to Own in 2022
The 46 highest rated companies by Sustainalytics:
Sustainability & Environmental, Social and Governance (ESG) Advisory Practice
Some companies have chosen to focus on ESG because of investor or board pressure, others to protect themselves from the scrutiny of regulators, shareholder and activist investors, and others in preparation for increased government regulation. 2021 saw unprecedented records of investments in ESG, reported disclosures by major organizations, and filings of shareholder proposals. What are other top global trends:
Compliance: Regulators are looking for gaps between what companies claim in their filings and what their actual practices are. Many organizations have come under fire during the last year for accusations of misrepresenting or exaggerating the sustainable nature of their products or investments.
Diversity, Equity and Inclusion (DEI): Focus on DEI at the corporate level continues to be primarily on Board and C-Suite level diversity; though certainly not to the exclusion of the broader employee pool.
Shareholder Activism: This proxy season saw record-breaking support for shareholder proposals relating to environmental and social matters, with 34 proposals receiving majority shareholder support, up from the previous record of 21 supported proposals in 2020.
Bloomberg’s 2022 Gender-Equality Index Shows Companies Increasingly Committed to Reporting ESG Data
418 companies representing a combined market capitalization of USD16 Trillion and headquartered in 45 countries and regions are included in the 2022 Bloomberg Gender-Equality Index (GEI). The GEI framework scores companies across five key pillars: female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, anti-sexual harassment policies, and pro-women brand. There are also expanded areas of information requested to support the broader goal of providing more robust ESG data to investors. For example, GEI disclosure data now contributes to Bloomberg’s EEO-1 data including race and ethnicity demographics from U.S. companies that disclose this as part of their reporting requirements to the Equal Employment Opportunity Commission.
Bloomberg. (Also check-out their insights report)
Starting up: Responsible investment in venture capital
Venture capital general partners (GPs) have the opportunity to help establish positive culture, values and behaviours before they become ingrained and difficult to change as those companies scale.
What risks are most common among venture backed companies?
- Social risks: Privacy rights and other human rights risks, bias and discrimination in algorithms, and risks relating to income inequality, for example, in the move to automation.
- Governance concerns and failures: Use of dual share-class structures
- Climate-related risks: Energy consumption of blockchain technologies and cryptocurrencies.
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\\ Report & Paper Highlight \\
2022 EU Private Markets Reboot — PwC
GP Recommendations to ensure a successful implementation of ESG
Master ESG at the GP level:
- To emerge as a leader, consider viewing your entire operations through an ESG lens.
Actively manage ESG risk:
- Deepen engagement with corporates and improve ESG risk management processes.
Create distinct & transparent reporting:
- Ongoing engagement with LPs to ensure adequate reporting requirements are met.
Construct an ‘ESG-enhanced’ portfolio:
- ESG should be entrenched through screening to exit.
Master the data challenge:
- Leverage technology to streamline ESG data-collection processes.
Build a core ESG team:
- Whether through upskilling or hiring, GPs need a core ESG team.
What are the main drivers to invest in ESG?
How do you expect the weighting of your ESG investments to change going forward?
\\ Leading Across ESG \\
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